African Rainbow Capital reaping benefits from investing in TymeBank
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TYMEBANK, a digital smart bank that requires no documents and no monthly fees, has on-boarded 3.45 million customers in just over two years and plans to reach break-even in 2022.
Insight into the performance of new banks and technology start-ups such as Rain is hard to come by as they are not listed, but the latest financial results from JSE-listed empowerment investment group African Rain Capital Investments (ARC), which is invested in both firms, sheds some light.
The start-up bank is still small considering the likes of Capitec, which had some 14.9 million customers, Standard Bank with about 9.1 million customers and Absa with some 9.7 million customers, last year.
ARC Investments’ share in TymeBank’s fair value amounts to R1.17 billion (2020: R927 million), representing 10 percent of the value of the ARC Fund, which in turn is ARC Investments key asset and which has invested in some 47 companies.
The fledgling bank, which has no branches but can be accessed at kiosks in Pick n Pay and Boxer stores, leverages digital technology to make banking simple and affordable.
ARC said the bank had achieved revenue and cost targets in the 12 months to June 30.
An agreement with the Zion Christian Church (ZCC) in February last year to on-board a large proportion of the ZCC’s 9 million member base was postponed due to the pandemic.
However, it was expected to gain momentum once preventive Covid19 measures were relaxed and it was reasonably safe to resume activities to on-board church members.
TymeBank added products such as insurance, and a buy now, pay later product called MoreTyme.
Other measures to diversify its customer profile were also being worked on.
ARC Investments is owned (51.2 percent) by Ubuntu-Botho Investments (UBI), an empowerment company, which has as its key asset a 13.1 percent stake in Sanlam.
UBI, Sanlam’s largest shareholder, has more than 600 individual black shareholders and a number of groups.
The ARC Fund’s investment in Rain is valued at R3.31bn (2020: R3.11bn), or 27 percent of the fund’s value.
ARC Investments co-chief executive Johan van der Merwe said Rain had sustained strong customer growth, exceeding its subscriber targets in both the 4G and the 5G market.
Its 5G roll-out was progressing well and it had expanded its 5G coverage almost six-fold since launching the service some 18 months ago.
It now covers about 3 million households in Pretoria, Joburg and Cape Town.
A key focus was to improve customer experience, this following “unprecedented demand for its products and services that led to some customer challenges being experienced”.
These issues were exacerbated by strong demand on the fringes of its coverage footprint. Rain planned to fully participate in the upcoming government-initiated spectrum auction.
ARC Investments itself reported satisfactory full-year results with growth of 16.3 percent in its intrinsic portfolio value to R12.28bn.
Intrinsic net asset value per share fell 8.1 percent to R8.77, mainly due to increased number of shares following a rights issue.
The share price fell 3.25 percent to close at R3.57 on the JSE yesterday afternoon.
The ARC Fund strategy was to consolidate its capital in specific businesses and to work with its investment partners to unlock synergies.
“This, with progress being made by start-ups such as TymeBank and Rain, should go some way towards closing the gap between the intrinsic and market value,” said Van der Merwe.
“What has become apparent is that the impact of the pandemic is likely to be felt for years to come. The ARC Fund and its portfolio companies reassessed their business forecasts, where appropriate,” he said.
During the year, the ARC Fund invested R295 million in ARC Investments at share prices well below intrinsic value.
A R455m investment was made in Kropz plc, a nutrient producer with a development phosphate mine in South Africa and exploration assets in the Republic of Congo, while R106m and R49m was invested in the Arch Renewable Power Fund and Arch Cold Chain Solutions East Africa Fund, respectively.
The ARC Fund sold 30 percent of its interest in Fledge Capital as part of Fledge Capital’s share buy-back transaction for R270m, realising an internal rate of return of 15.9 percent.
Also, one of the largest black-empowered asset managers was established with a 25 percent interest in Sanlam’s South African Third Party Asset Management Business for R817m in December 2020.